Oil jumps on ban concerns, gold edges up

Europe/Russia oil ban fears lift oil prices

Oil markets rallied overnight and are also having a “wax-on, wax-off” week as they are bounced between China slowdown fears, and European energy bans, be they Russia or European-derived. Overnight, it was the energy bans that won the day as reports emerged that Germany and Hungary had moved into the ban on Russian oil imports camp. That sent Brent crude 2.05% higher to USD 107.35, with WTI gaining 3.05% to USD 105.10 a barrel. Asia is taking no chances ahead of weekend event risk and holidays next week. Brent crude has risen in Asia by 1.0% to USD 108.35, and WTI has gained 0.80% to USD 105.90 a barrel.

I believe there has been far too much complacency of late around the risks associated with either Russia or Europe imposing respective energy bans, or developments in the Ukraine war. If Europe is suddenly required to look for huge amounts of gas or oil supplies in international markets, that will offset China’s slowdown fears and send prices higher. That reality seems to be slowly permeating markets in the latter half of the week. In the short term, risks are skewed towards a retreat of USD 112.00 by Brent crude and USD 109.00 by WTI.

That would only lift oil prices into the middle of my wider expected medium-term range though. Neither event risk, is at this stage, enough, in my opinion, to move Brent crude out of a choppy USD 100.00 to USD 120.00 range, or WTI from a USD 95.00 to USD 115.00 range.

Gold gains on safe-haven flows

The rot finally stopped in gold overnight, which tested support at USD 1880.00 an ounce, as well as its 100-day moving average, before rallying to close 0.45% higher at USD 1904.25 an ounce. Significantly, it achieved that even as the US dollar continued to rally in New York markets. In Asia, pre-weekend hedging and a weaker US dollar has lifted it another 0.53% higher to USD 1904.60 an ounce.

There is a definite sense that gold is benefitting from haven flows in the past 12 hours. That makes complete sense given the month-end and weekend risks in the world, as well as regional investors looking to hedge risk over the barrage of holidays next week. However, it is too soon to say that gold has completed its medium-term corrective sell-off as nothing breaks bullish traders’ hearts like gold.

A deeper correction by the US dollar could ease the pressure on gold but I believe risks are still weighted to the downside. Failure of the 100-DMA at USD 1876.00 and the overnight low of USD 1872.00 signal further losses targeting the breakout triangle at USD 1835.00. It faces resistance at USD 1915.00, and USD 1940.00 an ounce.

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Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific, from 2016 to August 2022
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley was OANDA’s Senior Market Analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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